MAPICS Clings To Its Customers' Loyalty

MAPICS Clings To Its Customers' Loyalty
P.J. Jakovljevic - May 24, 2001

Event Summary

On April 30, MAPICS, Inc. (NASDAQ: MAPX), one of the leading providers of software applications for mid-sized manufacturers, reported results for the second quarter of its fiscal 2001. For the three months ending March 31, 2001, MAPICS reported earnings of $1.5 million, before goodwill amortization, on revenue of $34.0 million, which compares to the year-earlier period, when earnings totaled $640,000, excluding special charges and goodwill amortization, on revenue of $34.5 million. The Company reported breakeven earnings for Q2 2001 including goodwill amortization, compared with a net loss of $12.3 million, for Q2 2000. While the software license revenues of $10.9 million declined 27% compared to a year ago license revenues of $15 million, the company generated a total of $8.5 million in cash from operations that enabled it to reduce debt by $2.8 million and increase its cash position to $17.2 million.

Figure 1.

"Our ability to sustain cash earnings reflects the value of our extensive worldwide customer base," remarked Dick Cook, president and CEO. "In spite of the general slowdown in the economy, manufacturers are continuing to seek ways to enhance their backbone information systems as well as to equip their enterprises for more collaboration with customers and suppliers. This underlying demand is playing directly to the strengths of MAPICS."

Cook added, "We have the flexibility to support not only customers seeking to partner with MAPICS to upgrade to an entirely new system, but also those just wanting to add individual components to enhance their competitiveness and take their business online. Our products offer proven software solutions to manufacturers regardless of the computer equipment platform they may be using, and our active product development effort is providing positive momentum to our marketing programs. We found solid interest in new e-business applications introduced last week at our annual international User Conference. Cameleon, which is already being shipped, is our latest Internet-based tool that guides customers through a series of selections to configure a product for their particular needs and enables the automation of numerous sales-related activities. Commerce, an Internet storefront solution, integrates with MAPICS' planning and scheduling offering to enable customers to reserve plant capacity to guarantee on-time delivery of their orders. These and other MAPICS offerings are part of our overall solution that manufacturers can use to succeed in today's collaborative environment."

Market Impact

While the CEO rhetoric sounds like very little new accounts activity and a great effort to cross-sell to existing customer base, the company's resilience during current tempestuous times for smaller applications vendors is praiseworthy. Even as 2000 was quite challenging and put the company through a number of dilemmas and tough decision-making (e.g., acquisition of a competitor and subsequent restructuring), 2001 brings the challenge of evading the sword of Damocles, which is hanging over a vast majority of mid-market vendors.

During the last 15 months, MAPICS delivered a plethora of new e-business products and expanded its platform reach from its solely IBM iSeries (formerly AS/400) and DB/2 platforms to include Microsoft Windows NT, UNIX and Oracle DB platforms. MAPICS' solutions now comprise two ERP systems (XA and Point.Man), plus supply chain management (Thru-Put), collaborative commerce (TeamWeRX), and enterprise asset management (Maincor EAM) products. MAPICS has concurrently taken steps to reduce costs through a restructuring plan to re-direct additional resources to more attractive extended-ERP enterprise applications for manufacturers. Results in 2001 apparently reflect these actions. An enhanced product offering and sound financial position should position the company better than most of its struggling mid-market peers.

MAPICS has also maintained an active focus on additional partnering arrangements intended to help manufacturers move into a collaborative e-business land in a more controlled manner. To that end, we endorse MAPICS' recent partnership initiatives, like those with Vanguard Solutions Group for business intelligence add-on modules for its mature XA product, and Access Commerce, which also has a similar agreement with QAD for its attractive Cameleon product configurator (for more information, see MAPICS XA Expands BI Offering Through Partnership With Vanguard and Access Commerce Spices Up North American CRM Fray).

Nevertheless, the fact that the license revenue in 2000 was less than those in 1999 and 1998, when MAPICS only had the single, outdated product, indicates the company faces difficulties. The management of dual flagship product lines remains awkward for MAPICS and its affiliate channel. While we believe winning the new accounts will continue to be a tall order, the existing loyal client base is the company's greatest strength and asset, and the company will need to figure out how to be more effective in selling new modules to the existing base.

Out of over 3,500 customers, there may be about 2,500 accounts that are only on a service & maintenance basis, and we fail to see active programs directed to selling to the base. Consequently, the company needs to more efficiently mine its client base by doing a better job of selling the broadened offering, by getting its affiliate channel both excited about the product portfolio and by upgrading the channel's ability to sell. However, that will suffice only in a short-to-mid term. Therefore, strategically, MAPICS will have to solve the 'new deals' conundrum in a world where smaller vendors with older products have a problem to overcome the market's perception, in addition to scarce resources and an onslaught of bigger brethren.

MAPICS will have to resolve the predicament of its association with the old, green-screen, AS/400 product. Despite IBM's efforts to counter AS/400 platform's image of being proprietary (even by renaming it into iSeries), the market has been slow in warming up to it for e-business implementations. Given the fact that the market opportunity for Point.Man is therefore much larger than for XA, due to Point.Man's strong Web-enablement, personalization, interoperability and scalability capabilities, we should imagine Point.Man to tacitly become the main offering for MAPICS in the long run. The Catch 22 lays in the fact that XA is still functionally a stronger product than Point.Man across the range.

The product/platform cultures clash and the fear of Pivotpoint's brand being suffocated under MAPICS has, in fact, prompted some exodus of former Pivotpoint's executives and/or staff. Nevertheless, MAPICS seems to have controlled the damage as seen in the delivery of global functionality in its newest product release, Point.Man 6.0. The product includes financial capabilities, multi-currency functionality, and comes in several languages, which should make it more competitive. Unfortunately for MAPICS, the product delivery coincides with the global weakness of the market.

User Recommendations

Potential and current MAPICS users can be assured about its viability and position within the manufacturing mid-market. MAPICS remains a stable company, with a strong customer service record and developed affiliate channel in over 70 countries. The company has broadened its product lines and has seemingly weathered the major acquisition. However, one is to watch how well it will maintain ongoing strength within the affiliate channel, how well it will target the right e-business issues for the manufacturing mid-market and, subsequently, how it can increase the growth of new licenses.

Existing MAPICS XA customers should review the above-mentioned enhancements (both developed by MAPICS and through alliances) with their local affiliate to determine the additional value that can be generated from their MAPICS database. MAPICS customers with custom systems or products from other vendors should review the affiliate's development capabilities in order to gain data integration between their various systems. New customers evaluating MAPICS XA should consider the necessary enhancement modules an essential part of MAPICS XA and insist on reviewing them as part of their evaluation.

More comprehensive recommendations for both current and potential MAPICS users can be found in How Has MAPICS Been Extending?

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